The IRS today released an advance version of Rev. Proc. 2016-49 concerning the procedures to disregard and treat as null and void for transfer tax purposes, a “qualified terminable interest property” (QTIP) election in situations when the QTIP election was not necessary to reduce the estate tax liability to zero ($0). With the availability of portability elections, the superseded QTIP election nullification procedures brought into question the ability of a decedent’s estate to make an otherwise unnecessary QTIP election.
Rev. Proc. 2016-49 [PDF 370 KB] confirms the procedures by which the IRS will disregard a QTIP election, and it excludes from the scope of the revenue procedure those estates for which the executor elected portability of the “deceased spousal unused exclusion” (DSUE) amount under section 2010(c)(5)(A).
Rev. Proc. 2016-49 is effective September 27, 2016, and applies to QTIP elections within the scope of the revenue procedure.
Rev. Proc. 2001-38 provided relief from unnecessary QTIP elections—for example, a QTIP election made when the value of the taxable estate, before allowance of the marital deduction, was less than the applicable exclusion amount under section 2010(c), so that no estate tax would have been imposed whether or not the QTIP election was made. The belief was that an executor would never purposefully elect QTIP treatment for property if the election was not necessary to reduce the decedent’s estate tax liability. Following statutory amendments that allowed for portability elections, the executor of a deceased spouse’s estate might still want to elect QTIP treatment for property—even when the election was not necessary to reduce the estate tax liability.
Today’s revenue procedure explains that the IRS and Treasury have determined that it is appropriate to continue to provide procedures by which the IRS will disregard an unnecessary QTIP election and treat that election as null and void—but only for those estates in which the executor neither made nor was considered to have made the portability election. Accordingly, QTIP elections will be treated as void when all of the following conditions are met:
For those estates in which the executor made the portability election, Rev. Proc. 2016-49 provides that the QTIP election will not be treated as void.
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.